US sues Michigan Blue Cross Blue Shield

WASHINGTON (AP) -- The Justice Department alleged Monday in a lawsuit that Michigan Blue Cross Blue Shield is discouraging competition by engaging in practices that raise hospital prices -- conduct an assistant attorney general vowed to challenge anywhere it is found in the United States.

Michigan Blue Cross Blue Shield has most-favored-nation clauses or similar language in contracts with at least 70 of 131 general acute care hospitals in the state, the government alleges.

The lawsuit said that Michigan Blue Cross Blue Shield intended to raise hospital costs for competing health care plans and reduce competition for the sale of health insurance.

"As a result, consumers in Michigan are paying more for their health care services and health insurance," Assistant Attorney General Christine Varney, who runs the Justice Department's antitrust division, told reporters.

In response, Michigan Blue Cross Blue Shield said the lawsuit is seeking to restrict the nonprofit company's ability to provide the most deeply discounted rates from Michigan hospitals. The company said that negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michigan residents.

"Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost," the company said.

In some instances, the lawsuit states, Blue Cross has negotiated most-favored-nation clauses in exchange for increases in the prices it pays for the hospital's services. In those instances, says the suit, Blue Cross has bought protection from competition by causing hospitals to raise the minimum prices they can charge to Blue Cross competitors.

"Blue Cross has not sought or used MFN's to lower its own cost of obtaining hospital services," says the lawsuit.

The state of Michigan joined the Justice Department in the case filed in federal court in Detroit.

The lawsuit outlines two types of most-favored-nation clauses requiring a hospital to provide services to Blue Cross competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.

In alleging violations of the Sherman Act and the Michigan Antitrust Reform Act, the government said that under the "MFN-plus" clause, Blue Cross negotiated agreements requiring more than 20 hospitals -- including Sparrow Hospital in Lansing, St. John Hospital in Detroit and Munson Medical Center in Traverse City -- to charge some or all other commercial insurers more than the hospital charges Blue Cross. Under the other clause, Blue Cross has agreements requiring more than 40 small, community hospitals to charge other commercial health insurers at least as much as they charge Blue Cross, the lawsuit alleges.

Sparrow Health System spokeswoman Rose Tantraphol said Sparrow was not a party to the lawsuit, has not seen it and could not comment on the particulars of it.

She did say, though, that Sparrow "has a similar contractual arrangement with Blue Cross Blue Shield of Michigan as most other larger Michigan hospitals," and "as is common practice throughout the nation, contracted rates are determined, in part, based on volume."

In a statement, Munson said it was monitoring the situation "with interest," but had "no basis to know if the allegations in this lawsuit are true."

St. John Providence Health System spokeswoman Maureen Petrella said she had no comment.

Varney declined to say whether the Justice Department has open inquiries in other states of most-favored-nation clauses, which are not illegal unless they stifle competition.